In our search for companies trading at low prices relative to quality, we apply our proprietary valuation models. We emphasise price-to-book for price and five-year average return-on-assets as a proxy for quality. We then analyse the company in depth, scrutinising company statements and speaking with management. The size of each position is informed by our assessment of the risk of loss – the smaller the absolute downside and the greater the asymmetry,  the greater the position we are likely to take.

Throughout the investment process, we manage risk at the stock and portfolio level. At the stock level (by far the more important area where we manage risk), we focus on the price-to-value proposition and the risk of permanent loss: we assess leverage, profitability, consistency of earnings and free-cash-flow generation. At the portfolio level, we use various risk management models and analyses to identify and help assess aggregate portfolio risks.

Our investment team uses Federated Hermes’ resources to integrate ESG into our investment decision making process. Team members directly engage with companies on ESG issues. We also draw on the resources of EOS at Federated Hermes, our leading stewardship team, and collaborate with them on engagements with companies.